Consolidated Financial Statements of the Province of Alberta
for the Year ended March 31, 2006 - Part 2 - Table of Contents

1. Revenues
2. Expenses by Ministry
3. Comparison of Expenses by Function with Budget
4. Expenses by Object
5. Valuation Adjustments
6. Cash and Temporary Investments
7. Portfolio Investments
8. Equity in Commercial Enterprises
9. Equity in Crown-Controlled SUCH Sector Organizations
10. Loans and Advances
11. Inventories for Resale
12. Unmatured Debt
13. Debt of Alberta Capital Finance Authority
14. Pension Obligations
15. Other Accrued Liabilities
16. Tangible Capital Assets
17. Guarantees
18. Listing of Organizations

Schedule 1 - Revenues

Schedule 2 - Expenses by Ministry

Schedule 3 - Comparison of Expenses by Function with Budget

Schedule 4 - Expenses by Object

Schedule 5- Valuation Adjustments

Schedule 6- Cash and Temporary Investments

Schedule 7- Portfolio Investments

(a) The majority of the Province’s fixed-income securities are held by the General Revenue Fund to repay debt as it matures, to provide funding for the capital plan, and to help protect operating and capital spending from short-term declines in revenue and the costs of emergencies, disasters, natural gas rebates and settlements with First Nations. As at March 31, 2006, the General Revenue Fund held $8.67 billion (2005 $6.19 billion) of public fixed-income securities at cost (Fair value $8.64 billion (2005 $6.19 billion)). The securities held have an average effective market yield of 4.2% (2005 3.4%) per annum. 41% of the securities held had terms to maturity of less than one year.

(b) Fixed-income securities are also held by the Alberta Heritage Savings Trust Fund (Heritage Fund). As at March 31, 2006, the Heritage Fund held $4.53 billion (2005 $3.66 billion) of public fixed-income securities at cost (Fair value $4.55 billion (2005 $3.73 billion)). The securities held have an average effective market yield of 4.8% (2005 4.6%) per annum and the following term structure based on principal amount.

(c) The Heritage Fund and the endowment funds (Note 5 (d)) use derivative contracts to enhance investment return, hedge risks and manage asset mix.

As at March 31, 2006, the notional amount of all derivative contracts issued by the Heritage Fund amounted to $8.1 billion (2005 $4.0 billion). All derivative contracts taken together had a net positive fair value of $136 million (2005 $19 million) (see Note 9). The following is a summary of the notional amount and fair value of derivative contracts held by the Heritage Fund at March 31, 2006.

As at March 31, 2006, the notional amount of all derivative contracts issued by the endowment funds amounted to $1.3 billion (2005 $0.6 billion). All derivative contracts taken together had a net positive fair value of $26 million (2005 $3 million) (see Note 9).

Schedule 8- Equity in Commercial Enterprises 

Schedule 9- Equity in Crown-controlled SUCH Sector Organizations

(a) Crown-controlled SUCH sector organizations follow the deferral method of accounting. Restricted non-capital contributions are deferred and recognized as revenue when related expenses are incurred. Deferred contributions represent restricted non-capital contributions which remain unspent. Capital contributions, including contributions from government sector entities, are recorded as deferred capital contributions until invested in tangible capital assets. Amounts invested are then transferred to the unamortized deferred capital contribution account and recognized as revenue when the related amortization expense of tangible capital assets is recorded.

(b) The principal of externally restricted endowments included in equity must be maintained intact in perpetuity. Investment income earned on externally restricted endowments must be used in accordance with the various purposes established by the donors.

Schedule 10 - Loans and Advances 

Schedule 11 - Inventories for Resale 

Schedule 12 - Unmatured Debt 

(a) Book value represents the amount the Province owes. Fair value is an approximation of market value to the holder. The book value, fair value and weighted average effective rate include the effect of interest rate swaps. Effective rate is the rate that exactly discounts estimated future cash payments through the expected term of the debt to the net carrying amount. For non-marketable issues, the effective rate and fair value are determined by reference to yield curves for comparable quoted issues.

(b) Modified duration is the weighted average term to maturity of a security’s cash flows (i.e. interest and principal) and is a measure of price volatility. The greater the modified duration of a bond, the greater its percentage price volatility.

(c) Floating rate debt includes short-term debt, term debt with less than one year remaining to maturity, and term debt with interest rate reset within a year.

(d) Canadian dollar fixed rate debt includes $679 million (2005 $679 million) held by the Canada Pension Plan Investment Fund.

Debt principal repayment requirements at par in each of the next five years, including short-term debt maturing in 2006-07 and thereafter, are as follows:

None of the debt has call provisions (2005 none).

Derivative financial instruments
The government uses interest rate swaps contracts to manage the interest rate risk associated with unmatured debt. Interest rate swaps involve the exchange of a series of interest payments, either at a fixed or floating rate, based upon a contractual or notional principal amount. An interest rate swap agreement based upon a notional amount involves no exchange of underlying principal. The notional amount serves as the basis for determining the exchange of interest payments. At March 31, 2006, interest rate swap agreements were being used primarily to convert fixed interest rate payments to floating rates.
The following table summarizes the Province's derivative portfolio and related credit exposure (see Note 9).

Schedule 13 - Debt of Alberta Capital Finance Authority 

Interest rate contracts are used to manage exposure to fluctuations in interest rates in certain fixed rate loans (Schedule 10) and related debt made after January 1, 2004.

As at March 31, 2006, the notional amount of all derivative contracts issued by the Alberta Capital Finance Authority relating to the loans and related debt amounted to $2.8 billion (2005 $1.3 billion). Approximately 20% (2005 27%) of these contracts mature within one year. All derivative contracts taken together had a net negative fair value of $9 million (2005 negative $2 million) (see Note 9).

Debt principal repayment requirements in each of the next five years, including short-term debt maturing in 2006-07 and thereafter, are as follows:

Schedule 14 - Pension Obligations 

The Province has pension obligations in respect of public sector pension plans as described below.

(a)The Teachers’ Pension Plans Act requires all teachers under contract with public and separate school jurisdictions in Alberta to contribute to the Teachers’ Pension Plan. Under the Act, the unfunded liability for service credited prior to September 1, 1992 is being financed by additional contributions in the ratio of 67.35% by the Province and 32.65% by the teachers over the period ending August 31, 2060. In addition, for service after August 1992, the Province funds 50% of the post-1992 unfunded liability, any current service costs and certain cost of living benefits. The Act provides that payment of all benefits prior to September 1, 1992 is guaranteed by the Province.

(b) Under the Public Sector Pension Plans Act, the Province has obligations for payment of additional contributions under defined benefit pension plans for certain employees of post-secondary educational institutions and municipalities. The plans are the Universities Academic and Special Forces pension plans.

For Universities Academic, the unfunded liability for service credited prior to January 1, 1992 is being financed by additional contributions of 1.25% of pensionable salaries by the Province, and contributions by employers and employees to fund the remaining amount, as determined by the plan valuation, over the period ending on or before December 31, 2043. Current service costs are funded by employers and employees.

For Special Forces, the unfunded liability for service credited prior to January 1, 1992 is being financed by additional contributions in the ratio of 45.45% by the Province and 27.27% each by employers and employees, over the period ending on or before December 31, 2036. Current service costs are funded by employers and employees. The Act provides that payment of all benefits arising from pensionable service prior to 1994, excluding post-1991 cost of living adjustment benefits, is guaranteed by the Province.

(c) The Public Service Management (Closed Membership) pension plan provides benefits to former members of the Public Service Management pension plan who were retired, were entitled to receive a deferred pension or had attained 35 years of service before August 1, 1992.

For Management Employees, the unfunded liability as determined by actuarial funding valuations as at December 31, 2001 and 2004 is being financed by special payments totalling 7.2% of pensionable earnings shared between employees and employers until December 31, 2015. The special payments will decrease to 5.1% of pensionable earnings on January 1, 2016 and continue until December 31, 2018 as required to eliminate the unfunded liability on or before that date. Current services costs are funded by employers and employees. The government guarantees payment of all benefits arising from service before 1994.

For Public Service, the unfunded liability as determined by an actuarial valuation as at December 31, 2002 is being financed by a special payment of 2.76% of pensionable earnings shared equally between employees and employers until December 31, 2017 as required to eliminate the unfunded liability on or before that date. Current service costs are funded by employers and employees.

(d) The Province has a liability for payment of pension benefits under a defined benefit pension plan for certain current and former Members of the Legislative Assembly. Active participation in this plan was terminated as of June 1993, and no benefits can be earned for service after that date.

Pension obligations are based upon actuarial valuations performed at least triennially using the projected benefit method prorated on services. The assumptions used in the valuations were adopted after consultation between the pension plan boards, the government and the actuaries, depending on the plan, and represent best estimates of future events. Each plan’s future experience will inevitably vary, perhaps significantly, from the assumptions. Any differences between the actuarial assumptions and future experience will emerge as gains or losses in future valuations. Gains and losses are amortized over the expected average remaining service lives of the related employee groups.

Information about the economic assumptions used in the most recent actuarial valuations is provided below for each plan for which there is an obligation. Demographic assumptions used in the valuations reflect the experience of the plans.

The actuarial valuation of the Teachers’ Pension Plan as at August 31, 2004 indicated an actuarial deficiency of actuarial net assets over the actuarial present value of accrued benefits. The unfunded liability was extrapolated to March 31, 2006. The Province’s share of the unfunded liability as at March 31, 2006 is comprised of actuarial asset value of $1,705 million (2005 $1,524 million), actuarial liabilities of $6,331 million (2005 $6,001 million) and net unamortized deferred loss of $202 million (2005 $214 million). The actual return on assets was 12.8% for the year ended August 31, 2005.

As at December 31, 2005, the Management Employees Pension Plan reported a deficiency of $166 million (2005 $268 million) and the Public Service Pension Plan reported a deficiency of $188 million (2005 $450 million). These unfunded liabilities were extrapolated to March 31, 2006. The government’s share of the unfunded liabilities as at March 31, 2006 includes net unamortized deferred losses of $99 million (2005 $355 million).

A separate pension plan fund is maintained for each pension plan except for the Members of the Legislative Assembly plan. Pension plan fund assets are invested in both marketable investments of organizations external to the government and in Province of Alberta bonds and promissory notes.

Schedule 15 - Other Accrued Liabilities

Schedule 16 - Tangible Capital Assets

Schedule 17 - Guarantees

Authorized loan guarantee limits are shown below where applicable. Where authorized loan guarantee limits are not noted, the authorized limits decline as guaranteed or indemnified loans are repaid.

Guarantee programs under the following Acts are ongoing:

• Feeder Associations Guarantee Act (authorized guarantee limit set by Order in Council is $55 million),
• Agriculture Financial Services Act, and
• Student Loan Act (authorized guarantee limit set by Order in Council is $400 million).

The lender takes appropriate security prior to issuing to the borrower a loan which is guaranteed by the Province. The security taken depends on the nature of the loan. Interest rates are negotiated with the lender by the borrower and typically range from prime to prime plus two per cent.

(a) The expiry date shown is the latest expiry date for guaranteed loans under the program. No new program guarantees are being issued under the Farm Credit Stability Act.

Schedule 18 - Listing of Organizations 

The financial statements of the following organizations are fully consolidated in these financial statements:

GOVERNMENT SECTOR ENTITIES

Offices of the Legislative Assembly
Support to the Legislative Assembly
Office of the Auditor General
Office of the Ombudsman
Office of the Chief Electoral Officer
Office of the Ethics Commissioner
Office of the Information and Privacy Commissioner

Departments
Aboriginal Affairs and Northern Development
Agriculture, Food and Rural Development
Advanced Education
Children’s Services
Community Development
Economic Development
Education
Energy
Environment
Executive Council
Finance
Gaming
Government Services
Health and Wellness
Human Resources and Employment
Infrastructure and Transportation
Innovation and Science
International and Intergovernmental Relations
Justice
Municipal Affairs
Restructuring and Government Efficiency
Seniors and Community Supports
Solicitor General and Public Security
Sustainable Resource Development

Regulated Funds
Access to the Future Fund (a)
Alberta Heritage Foundation for Medical Research Endowment Fund
Alberta Heritage Savings Trust Fund
Alberta Heritage Scholarship Fund
Alberta Heritage Science and Engineering Research Endowment Fund
Alberta Risk Management Fund
Alberta School Foundation Fund
Environmental Protection and Enhancement Fund
Historic Resources Fund
Lottery Fund
Provincial Judges and Masters in Chambers Reserve Fund
Supplementary Retirement Plan Reserve Fund
Victims of Crime Fund

Provincial Agencies
Agriculture Financial Services Corporation
Alberta Alcohol and Drug Abuse Commission
Alberta Capital Finance Authority
Alberta Energy and Utilities Board
Alberta Foundation for the Arts
The Alberta Historical Resources Foundation
Alberta Informatics Circle of Research Excellence Inc.
Alberta Local Authorities Pension Plan Corporation (a)
Alberta Pensions Administration Corporation
Alberta Petroleum Marketing Commission
Alberta Research Council Inc.
Alberta Science and Research Authority (c)
Alberta Securities Commission
Alberta Social Housing Corporation
Alberta Sport, Recreation, Parks and Wildlife Foundation
Calgary and Area Child and Family Services Authority
Central Alberta Child and Family Services Authority
East Central Alberta Child and Family Services Authority
Edmonton and Area Child and Family Services Authority
The Government House Foundation
Human Rights, Citizenship and Multiculturalism Education Fund
Metis Settlements Child and Family Services Authority
Natural Resources Conservation Board
North Central Alberta Child and Family Services Authority
Northeast Alberta Child and Family Services Authority
Northwest Alberta Child and Family Services Authority
Persons with Developmental Disabilities Calgary Region Community Board
Persons with Developmental Disabilities Central Region Community Board
Persons with Developmental Disabilities Edmonton Region Community Board
Persons with Developmental Disabilities Northeast Region Community Board
Persons with Developmental Disabilities Northwest Region Community Board
Persons with Developmental Disabilities Provincial Board
Persons with Developmental Disabilities South Region Community Board
Southeast Alberta Child and Family Services Authority
Southwest Alberta Child and Family Services Authority
The Wild Rose Foundation

Non-commercial Crown-controlled Corporation
Alberta Insurance Council

The following organizations are accounted for on the modified equity basis in these financial statements:

Commercial Enterprises
Alberta Gaming and Liquor Commission
The Alberta Government Telephones Commission (c)
Alberta Treasury Branches
Credit Union Deposit Guarantee Corporation
N.A. Properties (1994) Ltd.

Commercial Crown-controlled Corporation
Gainers Inc.

Non-commercial Crown-controlled Corporation
Safety Codes Council (b)

CROWN-CONTROLLED SUCH SECTOR ORGANIZATIONS (b)

School Boards and Schools

Almadina School Society
Aspen View Regional Division No. 19
Aurora School Ltd.
Battle River Regional Division No. 31
Black Gold Regional Division No. 18
Boyle Street Education Centre
Buffalo Trail Public Schools Regional Division No. 28
Calgary Arts Academy Society
Calgary Girls’ School Society
Calgary Roman Catholic Separate School District No. 1
Calgary School District No. 19
Calgary Science School Society
Canadian Rockies Regional Division No. 12
CAPE-Centre for Academic and Personal Excellence Institute
Chinook’s Edge School Division No. 73
Christ the Redeemer Catholic Separate Regional Division No. 3
Clearview School Division No. 71
East Central Alberta Catholic Separate Schools Regional Division No. 16
East Central Francophone Education Region No. 3
Edmonton Catholic Separate School District No. 7
Edmonton School District No. 7
Elk Island Catholic Separate Regional Division No. 41
Elk Island Public Schools Regional Division No. 14
Evergreen Catholic Separate Regional Division No. 2
Foothills School Division No. 38
Fort McMurray Roman Catholic Separate School District No. 32
Fort McMurray School District No. 2833
Fort Vermilion School Division No. 52
Foundations for the Future Charter Academy Charter School Society
Golden Hills School Division No. 75
Grande Prairie Roman Catholic Separate School District No. 28
Grande Prairie Public School District No. 2357
Grande Yellowhead Regional Division No. 35
Grasslands Regional Division No. 6
Greater North Central Francophone Education Region No. 2
Greater Southern Public Francophone Education Region No. 4
Greater Southern Separate Catholic Francophone Education Region No. 4
Greater St. Albert Catholic Regional Division No. 29
High Prairie School Division No. 48
Holy Family Catholic Regional Division No. 37
Holy Spirit Roman Catholic Separate Regional Division No. 4
Horizon School Division No. 67
Lakeland Roman Catholic Separate School District No. 150
Lethbridge School District No. 51
Living Waters Catholic Regional Division No. 42
Livingstone Range School Division No. 68
Medicine Hat Catholic Separate Regional Division No. 20
Medicine Hat School District No. 76
Moberly Hall School Society
Mother Earth’s Children’s Charter School Society
New Horizons Charter School Society
Northern Gateway Regional Division No. 10
Northern Lights School Division No. 69
Northland School Division No. 61
Northwest Francophone Education Region No. 1
Palliser Regional Division No. 26
Parkland School Division No. 70
Peace River School Division No. 10
Peace Wapiti School Division No. 76
Pembina Hills Regional Division No. 7
Prairie Land Regional Division No. 25
Prairie Rose Regional Division No. 8
Red Deer Catholic Regional Division No. 39
Red Deer School District No. 104
Rocky View School Division No. 41
St. Albert Protestant Separate School District No. 6
St. Paul Education Regional Division No. 1
St. Thomas Aquinas Roman Catholic Separate Regional Division No. 38
Sturgeon School Division No. 24
Suzuki Charter School Society
Westmount Charter School Society
Westwind School Division No. 74
Wetaskiwin Regional Division No. 11
Wild Rose School Division No. 66
Wolf Creek School Division No. 72

Universities

Athabasca University
The University of Alberta
The University of Calgary
The University of Lethbridge

Colleges

Alberta College of Art and Design
Bow Valley College
Grande Prairie Regional College
Grant MacEwan College
Keyano College
Lakeland College
Lethbridge Community College
Medicine Hat College
Mount Royal College
NorQuest College
Northern Lakes College
Olds College
Portage College
Red Deer College

Technical Institutes and The Banff Centre

Northern Alberta Institute of Technology
Southern Alberta Institute of Technology
The Banff Centre For Continuing Education

Regional Health Authorities and Other Health Boards

Alberta Cancer Board
Alberta Mental Health Board
Aspen Regional Health Authority
Calgary Health Region
Capital Health
Chinook Regional Health Authority
David Thompson Regional Health Authority
East Central Health
Northern Lights Regional Health Authority
Peace Country Health
Palliser Health Region

(a) Commenced operations in 2005-06.
(b) In transition period (see Note 1 B).
(c) Ceased operations.

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